Tkaniny !

That's the word you're searching for if you're looking for fabric in Poland.

I had only found three adresses when searching on the internet, but I found many more just by walking in the streets.

The shops are mainly small ones, but they're often well stocked (for the size).
They have very good basics (beautiful linens, cottons, wools), synthetic laces in unbelievable colors, of course the traditional flowery polish fabrics, and lots of printed rayon fabrics.
The only downside, in my opinion, is the "style" of these printed fabrics. They look a bit like new old stock from the communist era. Big flowers, etc. But still tasteful.

I'll only talk about the shops selling garment fabrics. A lot of "tkaniny" shops sell mainly curtain ("firany") and furnishing fabrics.

Open me in a new window to enlarge me and see the names of the streets.

1 - Madec.
Good sized shop. Interesting choice at good prices. A bit of everything. (2nd favorite)
http://www.tkaninydekoracyjnemadec.pl/

2 - Milanex.
My favorite. The best stocked.  The young clerk speaks english.
http://www.milanex.pl/

3 - Konrad.
The only ones talking about polish linen. (every shop has linen, but we don't know if it's really from Poland). They were closed when I went, but I looked by the window. It's really small. Seemed mostly basics, quality fabrics. The prices are related to this.
http://www.tkaninykonrad-krakow.pl/

4 - Dee Dee Mode.
Very small, a corridor. Similar to the others. (there are several in the same street, so why not check it while you're there).

5 - Kakadu.
Same range as the others. A bit of everything. The largest of the shops in this street.

6 - Zonia.
Didn't go in. (I was short on time) Choice seemed sparse. (same comment as Dee Dee)

The prices are about 20% cheaper than in Western Europe. Luxury fabrics are about the same prices (which is really expensive for the country, I imagine).

Linen fabric is a local product (when I say local, I mean North East Europe). You'll find plenty in these shops. It's often blended with rayon. Konrad is the only shop giving the origin of its linen fabric as Poland.

Fabric shops only sell that. If you're looking for haberdashery, it's a "pasmenteria" you're after. I saw several in the city. One in the center, two in ul. Sw. Filipa, and one at level -1 of Galeria Krakowska.